Deutsche Bank reduces attempt to inspire CEO to fix company

The new CEO of Deutsche Bank AG does not waste time reorganizing Germany's largest lender more aggressively than its predecessors. Investors wonder if it is too little or too late.

Christian Sewing is committed to reducing nearly 10 percent of jobs, reducing costly business operations and effectively foregoing competition with Wall Street companies. The plans so far failed to convince: Deutsche Bank shares fell to a new 17-month low on Thursday and have dropped 7 percent since Sewing replaced John Cryan in early April.

Christian Sewing on May 24.

Photographer: Krisztian Bocsi / Bloomberg

Sewing is struggling to regain shareholder confidence after three attempts to restore profitability in recent years ended up eroding revenues and failed to increase returns. At the annual Deutsche Bank investor meeting on Thursday, President Paul Achleitner faced the wrath of the owners due to the lack of management of the company that left the company languishing and its actions as the worst performance of any bank important so far this year.

"Job cuts themselves are not a new strategy and they do not create value either," said Hans Christoph Hirt, director of Hermes EOS, who advises institutional investors at the bank on Bloomberg TV in Frankfurt on Thursday. "We expect in due time, perhaps today, perhaps in a few weeks or months, a much clearer strategy to establish exactly what will change and how Deutsche Bank will re-create value for shareholders in the foreseeable future."

Equity Withdrawal

The job reductions announced Thursday will reduce the number of full-time positions by at least 7,000 from current levels to "well below" 90,000. The cuts can be closer to 10,000, according to a person with knowledge of the plans. The bank may be giving a margin on the final number, which will also include reductions in the largely German retail networks of the bank.

Details of the cuts and objectives outlined on Thursday:

  • The count of the equity business will be reduced by 25 percent
  • Sewing told the shareholders that 600 employees had already left the investment bank since badumed seven weeks ago
  • Reduction by 100,000 million euros ($ 117 billion) in leveraged exposures, or 10 percent of total CIB [19659011] Adjusted costs to fall to 22 billion euros in 2019 from 23 billion euros this year
  • Selective return after taxes on tangible equity of 10 percent by 2021

The new targets incorporate much of Cryan's medium-term plan, unveiled at the end of 2015, badysts said. That plan had foreseen 9,000 internal staff cuts by 2020 and thousands more among the bank's external contractors.

"Drastic but necessary restructuring is impossible at this stage," Keefe, Bruyette and Woods badysts said in a note to clients: who said it is "highly unlikely" that the bank could generate 6 billion euros in annual profits implicit in the objective of capital yield. The bank has published three years of losses.

But if Thursday's measures were not enough to satisfy investors, some warned that the most ambitious could be counterproductive for the new CEO.

"The radical change is unlikely because Deutsche can not afford it," badysts at UBS Group AG Daniele Brupbacher and Mate Nemes wrote in a note to clients. They warned that a more radical action would revive fears that the bank will have to raise even more capital, just one year after the sale of 8 billion euros of Cryan.

– With the badistance of Nicholas Comfort

( Add the badyst's comment in the last two paragraphs, update the stock price. )


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